European Outlook: Global stock markets started to stabilise yesterday and this continued in Asia overnight, with the Nikkei managing a 0.23% gain at the close, while the ASX was up 0.41%. Gains are modest so far compared to the rout of recent days and investors remain cautious on Trump’s policies. U.S. and U.K. stock futures are also moving higher, which should see bond futures correcting some of yesterday’s gains. FTSE 100 underperformed and Gilts outperformed yesterday after news of the London attack and seems to be bouncing back again. The calendar fills up today with French business confidence numbers, as well as German and Eurozone consumer confidence and U.K. retail sales data alongside the CBI distributive trade survey.
RBNZ held the policy rate at 1.75%, as expected. Low for long remains in place, with Wheeler saying “Monetary Policy will remain accommodative for a considerable period.” But a dovish bias remain in place, as the Governor concluded that “Numerous uncertainties remain, particularly in respect to the international outlook, and policy will need to adjust accordingly. No change in rates is expected through to year end. USDNZD trades at 0.7050 from an overnight low of 0.7024.
US Data: The 3.7% U.S. existing home sales drop to a surprisingly weak 5.48 mln February clip trimmed the January pop to an unrevised 5.69 mln cycle-high from rates of 5.51 mln in December and a prior cycle-high 5.60 mln in November, as mild weather failed to visibly lift February sales. A 0.5% median price rise to $228,400 trimmed the seasonal downtrend from the $247,600 all-time high last June, while inventories rose 4.2% to a still-lean 1.75 mln. We assume a 3% sales rise in Q1 after a solid 13% rate in Q4 but a 7% contraction rate in Q3. Sales have adhered to an erratic uptrend since 2010. Existing home sales are on track for a 5% growth clip in 2017, following a 3.9% rise in 2016 and a 6.5% rise in 2015. We have cyclical increases of 59% for existing home sales and 39% for pending home sales, versus larger cyclical gains of 106% for new home sales, 169% for housing starts, and 136% for permits.
EU must prepare for U.K. walking out of Brexit talks without a deal. Bloomberg reported that EU officials are calling on the bloc to prepare for the possibility of Brexit without a deal, citing a private memo and people familiar with the discussions. The official EU negotiator Barnier reportedly told a meeting of EU Commissioners that some Conservative politicians in the U.K. are already trying to undermine efforts to find common ground. May is set to trigger Article 50 and start official divorce talks on March 29 and a key stumbling block are likely to prove the final bill to cover the U.K. outstanding U.K. liabilities, as EU officials insist the U.K. “must settle the accounts” when it leaves, stressing that it won’t be asked “to pay a single euro for something they have not agreed to as a member”. Barnier stressed that that a failure to come to an agreement would have “serious consequences”, not just for citizens living in the EU, but also supply problems for companies, air-traffic disruption, tougher custom controls and no more circulating of nuclear material. U.K. officials meanwhile question the legality of the bill and May has repeatedly said that “no deal for Britain is better than a bad deal for Britain”.
Main Macro Events Today
- FOMC Chair Yellen Speech – It’s unlikely she’ll try to alter the tone from last week’s FOMC result, where the Fed’s stance wasn’t as hawkish as the markets had expected. If she addresses policy, she will probably reiterate the gradual nature of the trajectory. Also on tap are the dovish dissenter Kashkari, who will discuss education and late in the day, the more hawkish voter Kaplan will speak on the economic outlook.
- US New Home Sales – February new home sales data is out later and should reveal a 2.7% increase for the headline to a 570k (median 565k) pace following a 3.7% increase to a 555k pace in January. The NAHB composite for February declined to 65 from 67 and the MBA purchase index is down 4.6% for the month.
- UK Retail Sales – Expectations are for a rise to 0.45 from a poor -0.35 in February and a rather dismal -2.1% report for January. The consumer has been keeping the UK economy ticking along despite of Brexit concerns – figure watched with keen interest for impacts on sterling.
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